next. and that makes all the difference, not some of the difference, all of the difference. i put a chart up that shows the average corporate tax rates of oecd countries and graphed that compared to the american tax rate going back to the 1980s, going through 2010. every tax reform proposal purports to deal with this tremendous disadvantage that america has in an international marketplace, but i put this up because it's striking to me that in these past two years, we've had a chairman of the ways and means committee that has done more for tax reform than any other chairman in my memory. going back 20 years, i can never think of a chairman that has worked harder to make the tax code make more sense for the american consumer and for the american family and for the american business than has dave

camp from michigan. he's retiring at the end of the this year as you all know and we're going to lose a tremendous talent in dave camp. but when he got together to take on the most ambitious reform of the tax code that i have seen in my lifetime, he said let's see if we can get the corporate income tax rate down to kind of that oecd country average, kind of that world international average. let's see if we can get in there with everybody else. that's striking to me because it is the best effort, again, that i have seen in my lifetime, and it was an effort to see if we can be right there in the middle, if we can be mediocre. i don't know when it became true in america that when we set our goals on doing something, our goal is to be kind of like everybody else. well, that's the way they do it in europe. how it came to be that in america when we decide that we want to make a difference, we look around at what everybody else is doing and say let's be the same. i don't want to be the same.

i want to lead. i want to lead. and what we do with the corporate income tax rate and the fair tax is take it to zero for one reason and one reason only and that is there's not one business on the planet that pay taxes. final consumers pay taxes. walmart doesn't pay taxes. walmart collects the tax from me when i buy and shop at walmart. the case for the fair tax is that it is the only tax being discussed that does two things. number one, it's the only tax being discussed that completely eliminates hidden taxes in the price of everything that we buy. i mean, you know how easy it is to get elected to congress if your campaign promises i'm going to take personal income tax rights down to zero and i'm just going to make all those big, bad kornti corporations pay the bill. do you know how easy it is to run as a campaign slogan? we're going to let you off the

hook and we're going to tax wall mar -- walmart. it's the only tax that makes transparent what the burden is on the m.a.s.h. camerican consu. what is the cost of government today? fair tax rate is set at 23%. it's a big number, it scares me sometimes when i think about it. i'm not entirely proud telling people i'm supporting a tax bill that creates a 23% consumption tax. that's what it costs to fund the united states government. fair tax is not a bill about shrinking the size of government. it's a bill about fixing our tax code so we can grow the size of our economy. 23% just happens to be what the marker is. we're the only ones who are honest with folks about what that number is. if it's too low, let's raise it but we'll be honest with folks about raising it. if it's too high, let's lower it but we can be honest with folks about what the size and scope of government is. the second thing that the fair

tax does that absolutely in other tax proposal proposes to do is it eliminates the payroll tax. payroll tax. you know, when i go into high schools and talk with senior classes, they'll talk about their part-time jobs. they know all about taxes now. didn't know about taxes before they took on that part-time job, but they know all about taxes now, and the one they want to know about is that one calleded fi ka and what are they getting for that? i don't know if you looked at the numbers, but payroll tax is the largest tax that 80% of american families pay. want you to think about that. how many thanksgiving and christmas dinners are going to be interrupted over the next 60 days with talk, dare i say arguments, about income taxes? griping about income taxes. frustration about income taxes. i can't tell you how many there will be, but there will not be one conversation about the payroll tax even though that's the largest tax that 80% of americans pay.

if you want to get the tax man off of the american entrepreneur's back, off the american family's back, if you want to create that thirst for proveduction that i think is inherent in the american psyche, you have to eliminate the largest tax that 80% of americans pay, and that is that payroll tax. people often think about sales taxes as being regressive. it's the only proposal in all of washington, d.c., that proposes to eliminate that tax burden that is the highest tax burden for 80% of american families. we've tried the income tax route. this chart up here on the wall shows the top marginal income tax rate going back to the kennedy administration. john kennedy was the original tax cutter. he cut that rate from 91% down to 70%, but he didn't bring in any more money. across the top of this i have graphed marginal tax rates. across the bottom of graphed

individual tax receipts and i need to give credit where credit is due. heritage foundation graphed this chart. they put out a tremendous group of economic charts to help people to understand the impact of washington's decisions on our economy, on our families, on our businesses. this comes from their collection, and what you see here is that it does not matter how high or how low the income tax rate is, america is only willing to give you so much. the largest change in individual income tax receipts came during the clinton administration, not because the tax rate changed at all during the clinton administration, but because the economy was on fire during those years in the '90s and it turns out if folks are making more money, they're spending more money, they're paying more taxes. the secret to bringing in more revenue is a bigger economy, not a higher tax rate. the fair tax defines that, exemplifies that in ways so many

other programs miss. i take you back to 1997 in the midst of this giant economic explosion, the joint tax committee had a symposium on how do you model a consumption tax? it's hard for me to get the fair tax scored because it's not just nibbling around the eges. it's something completely different than we have ever done before, and so the joint tax committee brought in economic analysts from the left and from the right all across the political spectrum, eight different macroeconomic groups and said, tell us how you would model a switch in america to a consumption tax like the fair tax. well, they all went out, and they came back months later. they all came back with different numbers as you would imagine, but the one thing these eight different macroeconomic analytical groups agreed on is that the american economy would grow faster under a consumption tax than under the current tax system.

now, the liberals thought it would just throw a little faster. the conservatives thought it would grow a whole lot faster but the area of agreement is we can do better and the pathway to doing better has to do with getting us out of the business of margin nal tax rates. it also has us getting out of the business of tax expenditures. people ask, what is the biggest challenge to getting the fair tax passed in washington? i say really smart people. biggest problem we have to getting the fair tax passed is all the people who are really smart in washington, d.c., because it turns out if you're really smart, you have got an idea about how we can use the tax code to make somebody else's life better. you do. you think, look, deep in your heart everyone in this room has an idea about how if only we manipulated the tax code in this way or that way we could affect the behavior of america and that would make america better. top tax expenditures in the budget, employer provided health care, home mortgage interest deduction, preferential rates for dividends and capital gains, it goes down to medicare benefits, exclusion for pension savings and the earned income

tax credit. the fair tax goes to zero tax expenditures, zero exceptions, zero exemptions. if you don't turn the whole system on its head, it's hard to change the association that folks have with these tax expenditures and their quality of life. when milton friedman was asked when he was testifying before george bush's tax advisory commission, they said what would be the easiest way to make sure that we don't have a new tax code littered with all of these deductions and exemptions? and he said start out with a tax code that has absolutely none. start out with a tax code that has absolutely no exceptions, deductions, exemptions, special carveouts because if there's a good reason to put one in there, i can probably make a good case to put in two and then three and then four and then five and isn't that the way we arrived at the income tax that we have today?

i don't dispute that there is value in each one of these tax expenditures. what i dispute is that the tax code is the best place to implement social policy. social policy is the best place to implement social policy. tax policy is the best place to collect taxes. fair tax, no deductions, no exemptions, folks pay that fair tax on absolutely every new good or service that they buy. eliminating those distortions from the economy, huge, huge difference in terms of utilization of capital. this one is titled america the self-destructive. it's put together by the tax foundation. it ranks -- tax foundation ranks folks by tax competitiveness. our friends in estonia are at number one on the list. the united states is down at number 32. i don't believe there's a worker in the world that works harder than the american worker.

i don't believe there's an infrastructure in the world that's better than the american infrastructure. i don't think there's a people on the planet that is more committed to economic success and they drive that one family, one worker, one entrepreneur at a time, i don't think there's anyone who does that better than we do, but we have handicapped ourselves, and the fair tax aims to wipe that slate clean. if you've been in this town for a little while, you have watched all of the machinations of trying to get a rebatable tax code to the american border. it's hard to do. many folks who are in the currency business would say, but we sort that out in the price of currency. it's not that big a deal but it's a big enough deal that most countries in the world are focused on succeeding at it. how do we keep our tax consequences from burdening the price of goods that we're shipping overseas? well, those countries that use vat taxes, rebate the vat tax at the border and those goods come here tax-free. for us, we have no such alternative. the fair tax solves that issue. doesn't just remove income taxes from the price of production,

but removes payroll taxes from the price of production as well. again, having an honest conversation about what the size and scope of government is and how much that costs the american consumer. i go back to that chart that we looked at on the top margin tax rates, individual income tax receipts. at its most volatile, at its most volatile, that period of time when 1990 and 2000, because the economy grew so fast, we added 3% to our individual tax receipts, 3%. in the best case scenario of the past 90 years, we added 3%. not because of different rates, but because of a better economy. our economy is out of whack today in a way that 3% won't do it. our revenues and our expenses are out of whack in a way that

3% won't do it. the best solution we have as a growing economy and, again, everyone agrees that a consumption tax moves us a little closer in that direction. and i'll close with this. it's interesting to watch what happens across the street in the capitol with a member's voting card in your hand. and what happens, and i should have intu witted and i didn't, what happens is when things are going well, all of those smart people i told you about have lots of places they would like to spend all the extra money that's coming in. good places. spend it on children and daycare. spend it on children and education. spend it on children and higher education. spend it on workers and retraining. the list goes on and on and on. things you and i would contribute to out of our own pocket because they are worthy causes. when the economy is going like gangbusters, we're bringing in

money hand over fist, federal receipts get bigger. but when the inevitable cycle comes and those receipts shrink because paychecks shrink and jobs shrink, we've now become accustomed to a brand new level of spending, and we borrow the spread until we get back into another cycle where our amplitude of tax receipts goes even higher and we begin to spend even more money. the amplitude of volatility, of income taxes, compared to sales taxes is night and day. the enemy of the federal budgeting process isn't that we don't have enough money one year, it's that we have much, much too much the next. smoothing out that volatility, having a more predictable revenue stream makes all the

difference in federal budgeting policy. fair tax, consumption taxes provide that certainty in ways that income taxes never can. again, you're making my day better by letting me come around here and talk about federal tax policy, particularly federal fair tax policy. had we been talking about federal income tax policy it would have made my day worse instead of better and i'm sheer wi here with three of the finest minds you could have on this topic. david is one of the first folks i met when i came to capitol hill. has forgotten more about the machinations of the tax solutions than i will ever know. todd has been leading a group that knows that you change -- you make big changes from the grassroots up and has been involving folks back home and around the country in making decisions and making the difference for as long as i have known him, and karen walby doing

the predictive work, the i dare say not the glamorous work of the fair tax, grinding through numbers after numbers after numbers and putting it in terms that the rest of us can understand makes all the difference in the world for the cause, and i'm grateful to her for it. just to be clear, i'm the guy who introduces the fair tax on capitol hill. i'm the guy who adds the new co-sponsors to the fair tax on capitol hill, but it's the grassroots organization across the country that is going to pass the fair tax on capitol hill, and every time you see a new member of congress who has added their name as a co-sponsor, you know it was not because of my power of persuasion, not my charisma, but because a group of constituents back home said, you know what, congressman, you know what, senator, there's a better way and it's called the fair tax and we'll work with you to get it done and as david said, we now have more courageous q co-sponsored of the fair tax

than any other fundamental tax reform bill on capitol hill and it matters. anything on anybody's mind? >> any questions that people would like to ask? laura. just generally please state your name and institutional affiliati affiliation. >> laura truman with the heritage foundation. i wanted to ask about the impact on social security. so one of the things maybe the average joe on the street doesn't know, social security is in trouble but those of us who watch numbers by having a designated trust fund and a designated tax, we can see the imbalance, but if you get rid of the payroll tax and you fund it out of general taxes, then some of that sense of it gobbling up all of the tax income or having a shortfall goes away. so how do you handle that? >> laura, you will remember that president bush chose in his

second term, was he going to take on tax reform or social security reform. he chose social security reform and it was so difficult not many folks today could tell you what progress was made in those four years. we didn't want to have to take on both at the same time. both of them are critical, and both need to be taken on. we tried to just take on tax policy and leave the social policy of social security for another day, and to do that then we locked in based on payroll as it exists and as it changes, we locked in a formula that said that social security trust fund will continue to receive exactly the same revenues that it would have received had we continued to fund it under payroll formula. but, again, payroll has proven inadequate to fund the social security system. rather than tying the fitness of the social security trust fund to the payroll base, i want to tie it to the size of the economy, which is what we do in a fair tax world.

we can grow the receipts that we have, preventing bankruptcy would not be the right terminology, but our options for dealing with social security's fiscal future will be better if we have a wider revenue stream coming in. if i could choose one of the easy things, the low hanging fruit we could do in the next two years, passing tax reform requires a president who believes in tax reform and i hope we can have that, but we all know what it takes to solve the social security problem. you either have to do something with benefits or you have to do something with revenue, and my great hope is that we will take some of the early steps to solve that issue in these next two years which makes then tying the fair tax into the two even easier. most folks don't understand the progressive nature of social security payments, and if young people today are saying they're

more likely to see a ufo in their lifetime than a social security check as we know they are, the time to have that honest conversation with folks about what the social security system has become and what its options are for the future is now. >> next question. sir? >> nick farmer -- >> just one second. >> nick farmer, retired citizen. you talked about the fair tax being revenue neutral. what about distributional neutral? how does it change the distribution of taxes? >> when dave camp set about doing fundamental tax reform, he committed himself to keeping the same distributional analysis that we have today. it was incredibly constraining. when the top 1% of income earners are paying the bulk of the taxes today, they won't be doing the bulk of the consuming tomorrow. rather than target trying to

keep the entire distributional table the same, we tried to target improving the distributional table for the lowest income americans. when i think about who needs attention from the tax code, it is often not those folks who are being brought down by the tax code, it's the folks the tax code isn't letting get up. when i'm a high income earner, i can adjust my income and bring it in any way i want to and bring it in at the lowest rates possible which is why even when the top tax rates were 90%, americans weren't paying any more than they were when the top tax rate was 28% but low income earners don't have any choices. all they can do is go to work for a paycheck every day. eliminating the payroll tax changes the distributional analysis for them in way that is no other proposal does. when president bush's advisory panel was looking, they released their preliminary july 2005

report and found that no proposal they were examining did more for low income americans than did the fair tax. i can't guarantee what taxes you will pay under the fair tax. what i can guarantee is you will have control over those taxes. by taxing you on what you consume rather than on what you produce, it brings your relationship as a funder of the american government enterprise into a much more control. we're going to discourage consumption perhaps but we're not going to discourage production, which is what we need not just from folks at the top of the income spectrum, but what we need from folks at the bottom of the income spectrum as well. it will actually change the distributional tables, but it will put the outcome of those into individual consumers' hands. >> this gentleman.

>> [ inaudible ] the lottery has been adopted as a progressive tax. how will the fair tax deal with lotteries? >> it's my least favorite part of the fair tax but it's called the prebait. i want to you think about what happens at the tax writing committees. i don't want to tax people for diapers they're buying for children. i don't want to tax folks on food they're buying. i hate to tax people on their prescription drugs and the calculator for school. the list goes on and on and on. if we let ourselves get into that cycle, as so many states do of what is worthy to be taxed and what's not. if you buy 12 doughnuts you do get taxed because that's a dozen doughnuts but if you buy 13, that's a wholesale purchase of doughnuts so you don't get taxed. we don't want to be in that business as federal legislators. so we created the prebate which

takes a look at the federal poverty line as created by health and human services based upon family size and said, listen nobody should have to pay taxes on the purchase of those essential goods defined in the poverty line. so we'll just give folks a rebate and we'll give it to them early of the taxes they would way on all of those goods up to the poverty level, but because we do that for every american, we don't have to find out how much money you make. we don't have to find out where you make it. think about this. the only relationship you will have as an individual american citizen with the federal government as it retains to taxes is filing your postcard that says this is my name, and this is how much children i have, and here are social security numbers. that's it. that's it. the involvement of the american taxman in the american consumer's life is over forever, and you can only do that if you

find a one size fits all kind of a process to deal with exceptions, exemptions, deductions. for us that's called the prebate and it's based on family size. >> any other questions? hearing none -- >> i'll take that as a wide acclamation and endorsement of everyone in this room for the fair tax. i will carry that proxy back across to the capitol now and see what we can do. again, you've made my monday a little bit better by coming over and talking about good news. >> thank you very much for coming. >> thanks, dave. >> appreciate it. >> thanks once again to the congressman. we'll now have our two panel guests, and i will quickly introduce them and then hand it over to them.

our first will be tom mccracken, president of the national small business association which is the toldest and second largest small business advocacy group in the united states. he became president of nsba in 1997 and previously he joined the association in 1988. previously serving as vice president of government affairs. he's testified before congress on numerous occasions, appeared on a wide variety of television shows and published in most of the leading newspapers in the country. he is a native of new mexico, and he received his b.a. in economics from trinity university in san antonio, texas. dr. karen walby is the research director at americans for fair taxation. their web is fairtax.org and they sometimes go by that name. she has 20 years of experience in federal and state tax policy analysis. having worked in that capacity

for three florida governors, two democrats and one republican. she's also worked for the taxation and budget reform commission of the florida legislature, and worked in the private sector and as director of research for florida tax watch. she has also served as an adjunct professor at florida state university. please join me in welcoming todd mccracken and you can either stay there or come up here. >> what are you going to do? >> i'm using slides so i will have to go over there. you're welcome to sit. >> thank you, david. it's very good to be here today. i really appreciate the opportunity to talk about the fair tax. it's a topic we need to talk about a little bit more because it clearly is the best system of taxation, we believe, for not just americans overall but specifically for the small businesses that we represent. we've been advocates of the fair tax now for a number of years.

i think we were one of the very first groups to endorse the tax, and it's because the small business community faces virtually every aspect of our tax system that i think we have been so committed to it. when you stop to think about it, if you own a business, you're one of the few people in the country that faces -- doesn't have to pay personal income taxes, business taxes, local taxes, payroll taxes. not only do you have to pay all those taxes, but you have to administer that whole tax system on behalf of the federal government. tough withhold from your employees. you have to sale with sales taxes for the states and localities if you do that. small businesses are the only ones facing the full brunt of everything our tax system has to offer. also i'd point out as much as our members hate paying taxes and think they pay too much in taxes, when you ask them what the biggest burden of the tax system is, they tell you it is actually the administration of

the taxes, the complexity and the burden and the time it requires of them week in and week out to deal with the income tax system and the payroll tax system and the estate tax system and the excise tax system that we have in the country today. you think about the current system we have, especially the income tax but also the payroll tax, it discourages entrepreneurs and entrepreneurship at virtually every level. most every entrepreneur, that is unless they sell tax shelters, see our system as punishing entrepreneurship and the american dream. at every stage of a business' life it faces significant tax obstacles. at the start up in level, savings are taxed. capital investments are made after tax dollars and then taxed multiple times when the income is earned and when the underlying assets that generate that asset stream is sold. they are taxed when sold. they are taxed when exporting

because u.s. taxes raise the price of our goods relative to foreign goods. they are taxed when they add jobs because our extraordinarily high payroll taxes increase the cost of hiring. family businesses are discouraged because they are taxed when they are sold. and finally the owner gets to meet the undertaker and the irs on the same day as the government feths a leverage buy out of the business. the payroll tax burden is one of the things that really attracts us to the fair tax. the payroll tax burden that small businesses face is enormous. it adds greatly to their cost of employment. most workers while they see the fica tax that the congressman alluded to in his talk on their paycheck, they don't see the other half of that bill that employers have to pay, and that works to both depress their wages but also to the extent it doesn't increase the wages that the employers have to pay for

those. the other thing that we have to think about from the small business perspective is the payroll tax system is one of the primary sources of fines that they have to pay because they have to remit those payroll taxes on behalf of their employees and themselves anytime there's a mistake or an error, and they do this every two weeks, they wind up with a letter, a fine, a notice from the irs they have to deal with. so it's both money out of the pocket of those small businesses but also enormous amount of time that they have to deal with. the other, of course, aspect of the whole system is the unnecessary complexity that we deal with in our system. small business community pays the lion's share of the overall compliance costs of our tax system, which are in the hundreds of billions of dollars every year that are paid in order to just administer the tax system, to hire the cpas, to

have work that is not getting done in the business. so to think about essentially removing those hundreds of billions of dollars is extreme ly attractive to the small business community. so we think to deal with these problems the fair tax clearly is the best system. it has enormous simplicity and compliance costs. when you boil it down, the only question -- businesses are the only entities who have to deal with the fair tax on a compliance and administrative basis and the only question they would have at the end of the year, how much did you sell to consumers? calculate the tax, send it in, you're done. that's all there is to it. compared to all the layers that i have just described for you here today. and for most of those companies that are administering that sales tax, they're already administering a sales tax in

their states. so the type of administration wouldn't be fundamentally different from what they're already having to do right now. the other -- one of the other main benefits is the visibility and understanding that congressman woodall described. the cost of the government would be right there in front of everyone to see on every purchase they make every day, and so i actually think that's one of the ways that actually would point out the evergrowing and increasing cost of our entitlement system is that every time those costs went up, the sales tax would go up common shur ratley and people would ultimately know why. economic growth, of course. small companies would be unshackled from this system. it would be easier to start a company, easier to grow a company. there would be greater rewards for growing a company. all of that would inevitably lead to greater economic growth and the need for -- less of a need for a higher tax rate.

it would, as the congressman again said it would, improve our international trade position, and the other issue that i would like to raise before it comes up, people often ask me, as an advocate for small companies, why are you for the fair tax because small businesses would wind up being some of the only people that would have to deal with the tax system. why is this good for retailers? i point out that every retailer -- virtually every retailer in the country has to deal with a sales tax today, but they also have to deal with income taxes, payroll taxes, and all of the rest of the plethora of things that i have already mentioned. if we had the fair tax, all of that goes away for the retailers. the only thing they have to deal with is that sales tax. so while, yes, they may be more burdened by administration of tax code than the typical consumer, but they'd be vastly less burdened than they are by the system we have today. so for all of those reasons and

i would say many, many more that i could get into if we had all the time in the world this afternoon, which we don't, we have been strong advocates of the fair tax and hope that the congressman has good luck in his efforts to convince his colleagues to get on board. with that i'll end and take your questions. thank you. >> karen? >> well, hello. congressman woodall and todd have done a good job, i think, of laying down the basics of the fair tax. what i'm going to focus on is the economics of it, and i'm going to do that with graphics rather than a lot of dull economics terminology. hopefully you will think that, but so the first thing that we need to look at with the fair

tax is what is the base of the fair tax? it's a consumption tax destination principle. it's neutral between savings and consumption. it's neutral among types of investment. neutral between capital and labor. and i forgot to do my slides. where is the -- oh. there we go. neutral between foreign produced and u.s. produced goods. and it is broader than the -- it has a broader base than the current system, and that's significant because broader bases -- a broader base allows for lower rates, and lower rates allow for less distortion in the economic system and promote higher growth.

all right. congressman woodall was talking about the consumption base and how it's a more stable base than the income tax base, and so what this graph shows is a comparison between agi there, adjusted gross income, and pce is personal consumption expenditures. it's not exactly the same as the fair tax base because it has some things in it that the fair tax doesn't tax like the value of the value to you of your house, what would it be if you collected rent on your own house. that's included in personal consumption expenditures, and the fair tax also includes government consumption, but anyway, it's a good parallel,

and the adjusted gross income is the basic base of the income tax, and you can see over time since 1975 i started with that because of the big recession in that time, and consumption -- personal consumption expenditures have had a steady growth every year since then with the base always growing. an estimate for 2012 of the fair tax base, the pce there is about $11 trillion and actual estimate of fair tax base is $12 trillion. okay. the next graph addresses the point about stability.

the problem with the income tax is you have bust and booms. when you're coming out of a recession, at least it used to be that way -- it's not that way this time -- but normally off burst of economic growth and then the income goes way up, and then you have a big growth in tax revenues and, oh, let's see if we can fund all these things with that, and then when you hit the next recession you have a level of spending that you can't sustain, and then you get into, well, where we are now, borrowing, what, 40% of what we're spending or something close to that range. the point -- the thing i want you to just to observe from this though is that the red line is the income tax base change from year to year and you can see that the ups and downs are much more variable than they are for

the personal consumption expenditures curve. actually adjusted gross income goes as low as a negative 7% growth in 2009, and in that year, it was a bad year. in that year consumption went down less than 2%. so that is another reason why the consumption would be a better tax base. so how does the fair tax boost economic growth? the broader base allows for lower marginal rates and lower marginal rates result in greater work savings and investment, and those in return result in higher productivity and higher costs which then result in increasing

jobs and wages. so it does benefit -- the benefit does go to the worker. it levels the international playing field. it treats u.s. businesses and foreign business activity the same. it would bring corporate headquarters to the u.s. or keep them here, the ones that are saying -- we've all heard recently about corporate headquarters leaving because of the very high corporate tax rate in the u.s. but also attract production because the system is border adjusted. the taxes from the producing company -- or country are taken out. so all in all, it will result in

the most attractive investment climate in the world if we implemented this system with a zero tax base -- i mean a zero corporate rate and a territorial system and equal treatment between -- of foreign produced goods and u.s. produced goods. here is just a table that summarizes how strongly disadvantaged the u.s. production is. in the red you see that for goods sold in the u.s. market, they pay both the income and payroll taxes are in the cost of american goods sold in the u.s. foreign goods sold in the u.s. don't have that burden in their costs, and so it gives them a

definite price advantage. it's been estimated as much as around 18%. good sold in foreign markets, we don't have what's called a border adjustable tax system, so when u.s. goods are sold in foreign countries, they still have the burden of the income tax and payroll tax included in the cost of the good, and then it makes them noncompetitive overseas. now, when you go to the fair tax, it levels the playing field. you can see in american goods sold in the u.s., they pay the fair tax. foreign goods sold in the u.s., they pay the fair tax. american goods sold in a foreign country, they pay that country's -- the foreign vat. the foreign production when they sell goods in a foreign country

pay the foreign vat. so it's exactly equivalent. it totally removes the disadvantage to american producers. all right. now we're going to quantify a little bit, give you some examples of research studies that have estimated just how much will the fair tax affect economic growth. this first study here was done by beacon hill, and what you're seeing there, the way economic models work is they estimate the current system, and then they introduce change into the model that reflects whatever the tax law change is, and then they estimate what the -- forecast the economic variables under those assumptions, and so you're comparing what would happen under the fair tax to what would

happen under the base case, which is what is expected to happen if the existing system remains in place. and you can see here this study looked at the impact of the fair tax on real gdp, jobs, investment, and wages, and so we have year one, year five, and year ten. so you can see in absolutely every variable there the fair tax has an immediate effect in year one. it's still going in year five and it continues even by the tenth year to have a pronounced effect. and what's especially important is the investment. you can see how huge the increase in investment would be. that's from removing the economic distortions in the tax

system and not discriminating against savings and investment. this is a similar study, a little bit different model. it also looks at the impact on economic growth in year one, year five, and year ten, and i have to point out a missing decimal point there. real gdp, that first column over there, that should be 2, 9, and 11%. 2% in year one, 9% in year five, and 11% in year ten. but it shows very similar results with all the -- getting an immediate economic impact in the first year and it persists well beyond ten years.

the studies went out 25 but i figured this would give you the idea. even consumption goes up, the fourth -- or i mean, yeah, fourth column there. people try to say consumption will fall because you're taxing consumption, but it doesn't. people have -- when no income tax and no payroll tax, they have more money in their pockets and they have more ability to spend. dpi, that's disposable personal income, that shows that even when you take the tax into account that they have to pay tax on everything they buy, their spendable income is still higher than what it would be under the existing system. this study takes -- measures a concept we call welfare gain. it looks over the long run.

basically you could equate welfare gain -- you could think of it similar to an increase in economic well-being, increase in purchasing power, and it shows that for all three income groups, low, middle, and high income, that their welfare gain all improves for each group, and the red bars, that's for the low income, and you can see that they get the greatest improvement. the middle income, the green bar, getting the second best improvement, and the -- i guess that's blue being the high income also improved, but much less so. so it is a very progressive resu result. and getting into the topic of progressivity and how -- and the

fair tax on the poor, the current system harms the working poor. the benefit of the tax loopholes goes to the wealthy. it's justified that, you know, you need a home mortgage deduction so people at the lower income levels can buy a home. well, that's baloney basically. i'll show you the data that proves it. and the payroll tax is highly regressive. the income tax you get a standard deduction and personal exemptions. on the payroll tax, they don't apply. so you may not pay income tax on the say first $10,000 or $20,000 depending on your family size, but on payroll tax you pay that tax on the first dollar. you pay it on every dollar up

until $117,000 i think it is. the system also harms the poor in that the higher rates of the income tax which reduces productivity, which reduces wages. so, in the end, it impacts the worker, and there's very high marginal tax rates on the working poor, which hurts their mobility. there's really a disincentive to, at certain levels in the system, where the earned income tax credit phases out, that it doesn't really pay them to park any harder, or any more. the congresswoman woodall was talking about the payroll taxes there. that's the example across all the various income groups, showing that what the proportion is of each interim group that

pay more payroll taxes than income taxes. yet payroll taxes aren't ever talked about. they're kind of the hidden secret of the tax system. which are very regressive. i mentioned that the -- all these tax expenditures that congresswoman woodall went through all would be good in the to do this, and oh, we should have an incentive for that. well, the first one, the mortgage interest, you see there the blue bar, the people making less than $50,000 only get 2% of the benefit of -- of the tax deduction. the 82% of it goes to those making more than $100,000. likewise, oh, we need the

charitable contribution deduction. that benefits the poor, because charities do things for the poor. well, i won't get into that one but a lot of charity goes to places that never flow any money to the poor. but anyway, they only get 1.6% benefit of the charitable contributions, and 87% of it goes to the well-off. and then even if you take all those tax expenditures, all those itemized deductions and combine them together, the low income only get 14%. compared to 61% for the well-off. you know, so the people say well, you can't get rid of all the exemptions, we need those. you know, they benefit the poor. they do not. the fair tax is progressive. they try to label -- put the regressive label on the fair tax

because it's a sales tax. well it is a prod-based consumption tax that exempts the poor completely. they take -- like the congresswoman said they take the poverty level spending, which is based on family size. it's different for every family. and that amount of spending is tax free. so, here's -- this shows the effect of the fact that people get refunded the taxes they pay on spending up to the poverty level. i took a particular family here, two adult, two child households. the poverty level for a two adult, two child house pod is

$31,460. they would pay zero tax. under the fair tax. and the median income, which is somewhere in the 50s to 60s, they would only pay about 10% to 11%. so while the fair tax rate of 23 is the same for everybody, because of the prebate the actual tax rate they pay is much lower. this is a study, somebody asked a question about distribution. this is a study that looks at the effective tax burden over the individual or the families' lifetime. it takes -- this is a very clever approach, actually. the doctor who is going to be speaking here in december, he

took families -- he created these families and he gave them a income earning history that was real world, goes up and down, and you know, when the expenses are higher when they have the kids, and when they go to college and all that. anyway he created a spending history, and a income history then he figured out what the income taxes would be for someone who had that income history, spending history and he figured out what the fair tax would be. and without getting a whole lot of detail here, the current system is the red bars, and you can see for every income group there, in his simulation, the current system effective tax burden is higher than it is under the fair tax. the green bar. what i do need to point out is

the -- this is a very good approach at looking at the distribution of the tax burden. because it's -- takes taxes, minus social security benefits received. you know you're paying your taxes and you get something back. so, that is very good at showing the true burden of the tax system. okay on charitable giving, they say charitable deductions will go away. the point i want to make here is that economic growth drives the deductions, it stays about 2% of gdp for the last 50 years. so the best thing that can happen for charitable deductions is for the economy to grow. i'm going to skip the housing part because that's kind of

complicated explain here in a short amount of time. so i do want to wrap up with the why i think the fair tax is the best tax reform plan. it promotes economic growth, which results in higher wages. it places u.s. workers in business on an equal footing with the foreign competition. it's fair. and simple. transparent and understandable. and uniquely everybody pays the tax, even though we say the poor pay no tax, that's because it gets rebated back to them. but when they go to the store and buy something, their bill has the tax on the bottom, and they pay. but then the government picks up the tab. but they see the cost of government. thank you. >> thank you very much. all right we have a few minutes left for any questions.

all right we have a question that came across the internet. it says, if i understand it correctly, social security payouts are based on what is paid in. how does that play out over the fair tax act? if you want to answer, it's fine, otherwise i know the answer. >> go ahead. i know the answer, too. but you haven't been talking lately. >> the fair tax bill is written so that an amount goes in to the social security trust funds that is equivalent to the amount that would have gone in if the payroll tax would remain in place and the benefit formula's key off of wages, and would be precisely the same as today. lawyers would report the wages to ssa just as they do today.

and the benefits would be precisely the same as they are today. so in terms of the basic benefit structure nothing would change. it would simply be the sources of revenue flowing into the trust funds, the sales tax revenue, rather than payroll tax revenue. >> all right, well, thank you all very much for coming. and we will conclude this event again the next two events are the three panelists on economic growth on december 3rd at 11:00. and the 10th of december, the former cbo director and scott hodge president of the tax foundation will speak here on how we can improve the tax policy process which really means revenue estimates, distributional analysis, transparency in how we view tax expenditures, and both the congressional budget act, the jct and the cbo.

thanks again. have a good day. live this morning an update on the operations of the secret service. acting director joseph clancy will appear this morning before the house judiciary committee to update lawmakers after security breaches in september. the former direct of the secret service julia pearson resigned in early october after serving a year and a half. "the washington post" is reporting the acting director plans to tell lawmakers that the agency has fallen short of its high standards, and that recent public attention has detrimental effects on workforce morale and operational security. this hearing expected to start shortly. the chair is bob goodlatte of virginia and the ranking member john conyers of michigan.

and this hearing expected to start shortly. an update on the secret service with acting director joseph clancy. this is before the house judiciary committee. mr. clancy formerly headed president obama's security detail. he came out of retirement after director pierson resigned. he says he's conducting a comprehensive bottom-to-top assessment to determine the root cause of recent problems with the secret service. he's been holding meetings with employees, and spending time at the white house with agents, and

officers. and this hearing expected to get under way momentarily.

and darrell issa there. being term limited out of his position as chair on the oversight committee. he'll be replaced by jason chaffetz as we learned yesterday. he's also in the room as we wait for this how judiciary committee to begin with an update on the secret service. we'll hear from acting director joseph clancy, who formerly headed president obama's security detail. he came out of retirement to try to fix some of the problems with the secret service, after security breaches in september there.

i can't imagine that you don't have enough photographs by now. we are waiting on the ranking

member of the committee, and we hope to start very shortly. we're waiting on a report of his progress, and that will dictate the start. so, stand by. good morning. the judiciary committee will come to order and without objection the chair is authorized to declare recess of the committee at any time.

we welcome everyone to this morning's hearing on oversight of the united states secret service. before we begin, i want to make members aware that the first portion of our hearing is open to the public. there may be items which we cannot discuss in an open setting because they fall into the category of being law enforcement sensitive information. thereafter, after the director has testified and we have concluded one round of questions we will recess briefly to clear the hearing room. after that, members and staff will be permitted to re-enter the room and we will convene the law enforcement sensitive portion of the hearing. today we welcome acting director clancy to a hearing to conduct oversight of the united states secret service. we very much appreciate you being here today, particularly given that you have only been on the job for a little over a month. you had an exemplary record of service as the head of the presidential protective division, and we're grateful that you agreed to take the reins of the secret service at this critical juncture. the secret service created by

president lincoln in 1865, has a long and distinguished history. the agency has two primary missions. criminal investigations, and protection of the president, vice president, and other dignitaries. while protection is clearly the most visible of its two missions, i would be remiss not to mention that the secret service has recently had a number of significant investigative accomplishments. including approximately 6,700 arrests for financial and cyber crimes in fiscal year 2014 alone. which prevented more than $3 billion in losses. it is important to note that the service has also had many successes, implementing its protective mission. in fiscal year 2014, the service provided protection for 6,000 travel stops, including more than 2500 visits by foreign dignitaries, and two national special security events. secret service is entrusted with protecting some of our most

valuable assets, including the president, the first family, and the white house. this is an extremely difficult, high-profile mission where which there is no margin for error. recent incidents give me great concern that the policies, procedures, and training at the secret service are not entirely up to the task. just after 7:15 p.m. on september 19th, 2014, omar gonzalez was able to scale the white house fence, evade numerous secret service officers outside the white house, and force his way through the unlocked front door, armed with a knife. although it was initially reported to the public, and congress, that gonzalez was apprehended just inside the north portico doors, we have since learned that he actually made it all the way to the east room of the white house before being tackled by secret service officers. the department of homeland security's review of this event uncovered a laundry list of errors that evening.

including, communication systems that didn't work, and that officers were not trained to use properly. a construction project along the white house fence that obscured officers' sight lines. unlocked front doors to the white house late on a friday evening. and a k-9 officer who was on a personal cell call without his radio earpiece in his ear, or his tactical radio at the time gonzalez scaled the fence. this delayed the officers response, meaning that the k-9 was not able to identify gonzalez as the target. the report also discusses a number of training and staff issues, as well as potential missed opportunities to stop gonzalez in the months leading up to september 19th. today's hearing will take place in two parts. a public portion and a closed portion, from which we will drill further down into the deficiencies that have been revealed in the secret service's policies and procedures, as well as any deficiencies with the physical security at the white house.

in particular, i am interested in discussing how the service intends to improve security at the white house when, as was true on september 19th, the president or other protectees, are not present. a month after omar gonzalez was able to enter the white house, another fence jumper was quickly apprehended by secret service officers, including the k-9 unit. it is my hope that this incident shows that the service has already implemented important reforms. however, the gonzalez fence jumper is just one of many events in the past few years that call into question whether the u.s. secret service is doing all it can to fulfill its mission and prevent mistakes. others include the colombian prostitution scandal. the recent ability of a security guard with a criminal history to take a service webben into an elevator with the president. and the incident in the netherlands dealing with intoxicated secret service agents. given the vital role the secret

service plays in the security of the president and the white house, it is critical that congress investigate the service's response to recent incidents and work with the service to make sure it fulfills its critical mission. this hearing is intended to do just that. and since the ranking member has not yet arrived, we will go ahead, and swear in our only witness and again welcome him. acting director, clancy, if you would raise your right hand and repeat after me. do you swear that the testimony you are about to give is the truth, the whole truth, and nothing but the truth, so help you god? thank you very much. let the record reflect that the acting director responded in the affirmative. and we welcome him. joseph p. clancy was designated as the acting director of the united states secret service on october 1, 2014, by secretary of homeland security jey johnson. prior to accepting the position

of acting director mr. clancy served as the executive director of cable security at comcast corporation. a 27-year veteran of the secret service, mr. clancy's career there began in 1984, in the philadelphia field office. mr. clancy was appointed special agent in charge of the presidential protective division on february 1, 2009. mr. clancy held this position until his retirement from the secret service on june 30, 2011. mr. clancy attended the united states military academy at west point, and is a graduate of villanova, university, with a bachelor of arts in political science, and criminal justice. prior to joining the secret service, mr. clancy worked as a high school teacher, and football and baseball coach for the philadelphia archdiocese. mr. clancy, we appreciate your presence here today and we look forward to your testimony. your written statement will be entered into the record in its entirety, and we ask that you summarize your testimony in five minutes or less.

to help you stay within that, there's a timing light on your table. so welcome, mr. clancy. >> thank you mr. chairman. chairman goodlatte, ranking member conyers and distinguished members of the committee. let me begin by recognizing the tremendous support this committee has given the secret service over many years, and acknowledge your staff both past and present to work with us on issues as varied as protection of former presidents, to cyber crime targeting our nation's banks and financial institutions. 44 days ago, i embarked on the greatest endeavor of my professional life. the privilege of leading the dedicated and self-sacrificing employees of the secret service through a challenging time in the agency's storied history. while returning to public service after beginning a second career in the private sector was not an easy decision, the call

to restore operational excellence to the secret service was too urgent to ignore. i did not come here today expecting this hearing to be easy but it is my hope that the next several hours will yield productive discussions about the state of the secret service. without question, the agency has been severely damaged in present years by failures ranging from disgraceful misconduct on the part of some employees, to operational breakdowns that undermine the trust and confidence that previous generations worked so hard to establish. one of those operational breakdowns was the white house incursion on september 19th of this year. i understand the committee was briefed last week on the department's review of the incident. i read the report. i found the findings devastating. what hits the hardest is the range of shortcomings that ultimately allowed omar gonzalez to enter the white house practically unencumbered. although i firmly brief the secret service is better than this incident i openly acknowledge that a failure of this magnitude, especially in

light of other recent incidents, requires immediate action and longer-term reform. the department found that the level of training for uniform division officers likely contributed to gonzalez's ability to breach the white house interior. and document -- there was confusion regarding the various roles and responsibilities during a fence jumping incident. to address this issue, i will continue to oversee the integrated training for white house uniform division officers, and tactical teams that was initiated after the september 19th incident. this training involves dynamic scenario based exercises simulating breaches of the white house grounds, my goal is to ensure that 100% of all white house branch officers receive this training by the end of the calendar year. if someone does attempt to scale the white house fence i want to ensure they are met with immediate and forceful resistance. but i also view the fence itself as a needed deterrent for would-be jumpers. the secret service has long held that prevention is the linchpin

of effective security plans which is why we are currently working with our partners in the national park service to look at potential changes that would assist in the detection and delay of any person attempting to scale the white house fence. special agent and uniform division staffing levels have direct impact on the secret service's ability to conduct regular in-service training. thanks to additional funding provided by congress, in fiscal year 2014 the secret service was able to hire a total of 238 new law enforcement positions, more than tripling the number of hired over the previous two years combined. this fiscal year we hope to surpass that number and continue our work to achieve staffing levels that are commensurate with mission requirements. however, i recognize that staffing challenges are not remedied overnight. as it stands now the recruiting and onboard process takes approximately 12 months. with an additional 7 months of training for new agents and officers. while staffing concerns within

the agency will take some time to resolve, i have taken immediate steps to improve the flow and quality of communication at all levels within the agency. an integral part of why i agreed to serve as acting director were troubling reports that some employees saw no option but to take their concerns to people outside the secret service. rather than trusting their supervisors, and the agency's leadership, to confront difficult issues head-on. that is unsustainable in any organization. while i have the utmost respect for the employees' right to report incidents of waste, fraud, and abuse in a confidential manner without fear of reprisal, i also see an urgent need to re-establish what i view as one of the most basic tenets of a well-functioning workplace. trust your boss that he will stand up and do the right thing. one of the first things i did -- one of the first actions i took since assuming this position was to foster better communication between the rank and file, their supervisors, and the agency's executive leadership.

i conducted town hall-style meetings with the secret service field offices around the country by video conference. i personally joined officers and agents at the white house complex during their daily roll call. in the event that employees are apprehensive about discussing their concerns with their supervisors i instructed the secret service ombudsman to establish a mechanism of elevating employee concerns directly to the executive review board for resolution. i made clear the importance of full accountability and directed that i be present when actions are taken. the core values of the secret service, justice, duty, courage, honesty and loyalty, have guided the agency through many challenges over the course of its history. now more than ever it is critically important for us to recognize that in the midst of all the turmoil, there is exceptional work being carried out by thousands of secret service employees around the country and around the world who embody these core values. in my view, failure can be an

integral part of success. whether that refers to an agency or to an individual. and we are confident we can fulfill our mission with honor, and restore the secret service's rightful place as the most respected protection service in the world. chairman goodlatte, and ranking member conyers, this concludes my opening remarks. i look forward to a good discussion, and will be happy to answer your questions during both the open, and closed, portions of today's hearing as appropriate. thank you. >> thank you, mr. clancy. and i will, ranking member has not yet arrived. i will begin the questioning and when he does arrive, we will recognize him for both his opening statement, and questions. as you know, the officers who were present when omar gonzalez jumped the fence on september 19th believe that he was not armed and did not present a threat that would warrant the use of lethal force. it was ultimately discovered that he was, however, carrying a knife when he entered the white house. can you explain to us the

service's policy for the use of lethal force? and given that mr. gonzalez did actually have a knife when he entered the white house, do you agree with the decision to withhold the report? >> yes, sir. dhs, department 6 of homeland security and the secret service have a very clear policy on the use of deadly force. basically, what it states is that an officer, when it's necessary, is authorized to use deadly force if the individual poses an immediate danger of death or serious bodily injury to the officer, the agent, or to someone else. >> and what nonlethal options does an officer have to subdue or stop a fence jumper? >> sir, officers, in addition to their weapon, they have batons, they have cs spray, the pepper spray, and obviously they're trained to use their hands, as well, to transition to that mode. >> now are you looking into

other options? >> sir, we're always looking at other options that are available. close consultation with other agencies, and we share information, so we're always evaluating the equipment that we have for our officers and agents. >> concern has been raised that there's an overreliance on the dogs, on the k-9s, that may have impeded the service's ability to stop gonzalez on september 19th. could you comment on that? >> sir, the k-9 are obviously a very important asset that we have on the north and south grounds of the white house complex. it is one option of several that officers can use in the event of a fence jumper. it's a decision that the officers have to make, depending on the circumstances, whether to use the k-9. but, previous jumpers have been confronted with -- our officers have used their hands, have used their baton, they've used other equipment to stop these fence jumpers. >> thank you. i want to give you an

opportunity to discuss an incident that occurred back in 2011. it's been reported that there was a period of initial confusion about whether gunshots had been fired toward the white house on november 11th, 2011, and that officers were told to stand down. can you comment on what the service did that evening? and the days following to investigate that shooting? and did the service realize or did it not realize that anything was wrong until the bullets were found on the side of the white house several days later? >> yes, sir. thank you. as i've been briefed, when we were aware of shots being fired, initially there were -- there was a report over the radio that there was a standdown order. but that was quickly overridden. our officers responded appropriately, they went to their defensive positions at the white house complex because they did hear some noise that sounded

similar to gunshots. we continue to -- try to identify where those noises came from. we knew there was construction down on constitution avenue, but we immediately, within two minutes, notified the park police of the sounds down by constitution avenue. within five minutes we located the vehicle where mr. ortega was -- what he was driving, within five minutes. within 30 minutes i believe we started a -- or built an incident command center on constitution avenue. and then we continued to stay with the course of the investigation of the next several days. >> and how quickly was there a warrant for the arrest of the suspect in that case? >> how many days, sir? sir we identified -- as i've been briefed we identified mr. ortega that day as the owner of the vehicle, and then through

the process of the investigation through our pittsburgh field office, we were able to identify where he was located, and i believe november 15th a warrant was served on him in the state of pennsylvania. >> so within a few days. >> yes, sir. >> not one day -- >> yes, sir. >> with regard to the elevator incident in atlanta on september 16th of this year. what steps has the service taken to review and revise its policies and procedures for handling third party security contractors? >> yes, sir. needless to say, sir, that was a break in our procedures. we did not follow procedures in our advance of that visit at the cdc. we have done a investigation on that, and the -- in general, someone who only sworn law enforcement officials should be in close proximity to the president who are armed. in this case, we did not follow the proper procedures. it's not a matter of necessarily changing policies but more of an

indication that we need to do better training. and reshape some of the training that we're doing with our folks on the protection details. >> on that, what is your policy for determining when third parties may be armed while in the proximity of the president, or another protected individual? how do you go about determining that? >> sir the advance agent will ask, first, is anyone -- if there's local security at the site, is anyone armed. and then, needless to say, we also do records checks on everyone who's going to be in close proximity of the president. in this case, again, we failed our procedures in allowing this gentleman to operate the elevator armed. >> thank you very much. my time has expired and i will now recognize the ranking member of the crime subcommittee the gentleman from virginia mr. scott for his questions. >> thank you. director clancy, thank you for being here. >> yes, sir. >> one of the problems we have around here frequently is that

when we do budgets, we don't think tax cuts affect the budget, and that budget cuts don't affect your ability to provide services. can you describe a little bit about the budget ups and downs over the last three or four years? >> yes, sir. when i came back to the secret service and accepted this position, i identified three three main areas of concern. one was staffing. one was training. and obviously the morale, as well. staffing is -- it's a complicated issue. back in 2011, we were at a high point with our staffing. we had approximately 7,024 security personnel back in 2011. 2012 and 2011 -- i'm sorry, 2012 and 2013 we had a severe drop-off. there were some uncertain times from a budget standpoint and also we realized, from what i understand, is that that 7,024 number was unsustainable. we were not able to year after

year continue to pay the pay of those employees. so our numbers dropped down. now in 2014 -- >> wait, director, did you need 7,024 people? >> yes, sir. >> okay, keep going. >> so in 2014 -- in 2014, with the help of congress, we were able to hire 238 new security professionals. which was a good help to us. but we were starting from scratch after not hiring very few people in 2012 and 2013. so we're starting to work our way back up, and needless to say, in 2015, that's a priority. right now we've got schedule 6 classes of uniformed officers, and six classes of special agents prepared to go through training this year. >> now, you are understaffed. what does that do to people's vacation time, and overtime? >> yes, sir. it affects their vacation time.

it affects overtime drastically. our uniform division works extremely hard, but very often they get their days canceled or their -- they have to extend their workday. and that has a severe effect on their morale. and it obviously has an effect on freining which is something we're going to correct moving forward. >> when you're understaffed what happens -- can you explain what happens to training? >> yes, sir. when we are understaffed it's difficult to get people out to their training assignments because of the operational needs of the service. so, one of the things we've done to alleviate that in the short-term is we've brought agents in from the field. to take some of these positions that uniform division has at the white house complex so that we can get people out to training. >> what happens when people are not properly trained? >> when we're not properly trained, sir, we fail. >> now, we have coming up next year another round of sequester, 10% across the board cut.

what would that do to your staffing morale and training? >> sir, that would have an effect on our staff, and on our training, and on our morale. we will continue to do our very best to fulfill the needs, and we will meet the needs of the protection of the white house, first family. we'll do whatever we need to do to make sure we meet those requirements. >> well, if you meet those requirements then something's got to give. what priorities will not be met if you need to transfer people on to the white house security? >> sir, sometimes we do have to reach out to our field offices, who are doing a tremendous job as the chairman had mentioned in his opening remarks. their investigative functions are sometimes, we take some of those agents to support us in a protective mode. >> did the transfer -- do you know if the transfer from treasury to the homeland security had any effect on your

ability to perform your mission. >> sir, i don't think i'm one to evaluate. i was manager when we were in the treasury department. certainly i've had good exposure and experience with the department of homeland security and we've used them, as i've been briefed from the most recent united nations. we used our other components within the department of homeland security to assist us in that united nations security plan. we used their hsi investigators to help us with post standing. we used their tsa agents to assist us with meg net-o-meters. we use the coast guard to assist us with our water sea support and air support. so we were able to use the components of the department of homeland security to assist us in a very critical mission. >> just for the record, when the fence jumper incident occurred, where was the president and the first family? >> sir, when the fence jumper on september 19th occurred, the president had just left for camp

david, and the first lady was out of the residence, as well. >> thank you, mr. chairman. >> chair thanks the gentleman and recognizes the gentleman from north carolina. >> thank you, mr. chairman. mr. clancy, good to have you with us this morning. >> thank you, sir. >> mr. clancy, if i were going to pursue an activity to direct attention to me, i believe i would find some exercise other than volunteering as a fence jumper at the white house. but that's me. maybe i'm in a minority in that role. >> yes, sir. >> but it's been reported that the service had multiple contacts with gonzalez prior to september 19th incident. will any review of that event include a review of how information regarding the suspect prior to that date was handled, including information gathered by the secret service investigators following gonzalez's arrest on july 19th, 2014? >> yes, sir.

that's correct, sir. do you want me to explain a little bit what happened? >> if you would do that. >> yes, sir. during that time, sir, when mr. gonzalez was arrested down in virginia, our roanoke office was advised of the arrest. there was consultation between the local authorities, and our agents, and at that time our agents did not interview mr. gonzalez. subsequent to that, when mr. gonzalez posted bond, our agents did interview mr. gonzalez, and we were aware of the weapons that he had in his vehicle. we were also aware of the map that he had in his possession. this is one of the most difficult, decisions an agent has to make. make an assessment of someone they're interviewing with whether or not that individual has the potential or the motive to do harm to any of our

protectees. and during that interview, mr. gonzalez did not exhibit any of those characteristics. he did not indicate in any way that he wanted to harm any of our protectees or indicate in any way that he wanted to harm any of our protectees of the president. subsequent to that, he did come to the white house for outside the white house perimeter. and as he was walking around the perimeter, one of our uniformed officers noticed he was -- he was a little suspicious the way he was walking, and there was a bulge in the back of his jacket. as i've been briefed here. and the officer approached him, and noticed that he had a hatchet in the back of his pants. as i was briefed. the hatchet, my understanding, in d.c. is not in violation of the law, if it's considered to be used for camping-type activities. and that's what his individual indicated he had the hatchet for. the individual also allowed for -- gave a consent search of

his vehicle. so he was very cooperative during the interview. when they searched his vehicle, there were no weapons found in the vehicle. there were other hatchets. there was other camping equipment to again to his story that he was involved in camping activities. so, again, he was released from our -- from the interview. then subsequently, on september 19th, he did return to the white house, and again three of the officers who were familiar with the hatchet interview recognized him. and to be candid, one of the things we've addressed since that incident, is that we've got to do a better job of communicating. those officers who saw mr. gonzalez walking on the perimeter of the white house, we did not do a good enough job of communicating to everyone, including our joint operations center, that he was in the vicinity again. >> thank you, mr. clancy. the question before that red

light illuminates. >> yes, sir. >> do you intend to review the white house's physical infrastructure or security risks? is it solely within the discretion of the service to update the physical security systems in place within the white house and surrounding grounds? and which other agencies or offices, if any, must approve any recommended improvements? >> yes, sir. that's a good question. thank you, sir. we are constantly evaluating all the security measures at the white house complex. in fact, the very first week, i walked the perimeter of the white house, as well as the interior of the white house, and looked at the security measures we have in place. now any adjustments we want to make, just as an example, the fence, we have to work with our partners, and we're happy to do that. and we've gotten very good cooperation with our partners to include the national capital planning commission, the fine arts commission, the national park service, and we work with those agencies on the perimeter of the white house for any adjustments we want to make.

>> i thank you for that, sir. >> yes, sir. thank you, sir. >> chairman, i yield back. >> thanks, the gentleman and recognizes the gentleman from tennessee mr. hoen for his questions. >> thank you, mr. chairman. it's a great honor to follow the gentleman from north carolina who has served this committee so ably for so many years and been a friend to me. and i appreciate that. >> thank you. >> the white house protection, does the secret service protection begin on the inside of the fence, or does secret service have personnel on the outside of the fence on 16? >> sir, we have a presence on the outside perimeter as well, yes, sir. >> do the d.c. police normally also provide some type of perimeter screening? >> sir, d.c. police is also on the outside. but the actual perimeter, the protection of the white house complex, would be the responsibility of the secret service. and we do have people that are in several different -- several different job descriptions on

the perimeter of the white house. >> on the day in question of september 19, 2014, how many agents were on the 16th street side, that's opposite andy jackson? lafayette square? how many folks were on the street beyond the white house perimeter? >> yes, sir. sir, typically we would have on the street two uniform division officers, but we also have some countersurveillance units that could be in that area by lafayette park. we also have posts that are right inside the gate -- >> but on the outside you have just a couple? none of them saw this man jump the fence? >> sir, they saw him prepping to jump the fence. by that they can usually see the body language of individuals who, as you know, so many pedestrians come up to the fence, but our officers, and other security folks, they recognize when someone is threatening to maybe prep to climb the fence and they started

to move in that direction. and as they started to make a move for the fence, they shouted verbal commands, sprinted to the -- to mr. gonzalez, and they were about an arm's length or two arm's lengths short of reaching him. >> and then what did they do then? did they jump over the fence, too? or were they incapable of doing that? >> no, sir. protocol there, sir is first to get on the radio and one of the officers did get on the radio to announce a fence jumper. then, their next role is to clear the fence line of all the guests and all the tourists that are on pennsylvania avenue. once that individual, in this case, gonzalez, had climbed over the fence, now it's the responsibility, primarily, of our emergency response team, and our other officers, that are inside the fence. >> and it's easy to second-guess. i mean, i would do it every saturday watching football. but doesn't it seem like they should have tried, been able to leap the fence and chased him

from behind and not just done what you said, come radio communication and clear other folks? they -- they didn't try to apprehend the person other than yell? >> no, sir. everyone has a specific position to hold. when an event like that happens. one of the reasons is because of the k-9. one of the tools that we have, it can affect how the k-9 react to that individual. i will say that as a result of september 19th, if you go by the white house you'll see that we have a biker out there now which we know is not going to prevent someone from jumping the fence but it will allow us a little more time to react to someone who may have designs on climbing the fence. that's been helpful. >> is that the only area we've had any history of people trying to enter the white house from the outside? >> no, sir. we've had people jump fences -- the fence on other parts of our perimeter. i will see that north grounds is more prominent in people

jumping, yes. >> would a moat -- >> moat? >> water, six feet around be kind of attractive and effective? >> sir, it may be. one of the things we balance is obviously the accessibility of the white house. we recognize the historic nature of the white house, and how the american people should have access to the white house. so, we are now in the process of working with our partners at the national park services to see if we can do something with the fence. that's our first step, so if we can do something that would still be appeasing to the eye and keep the historical nature of the white house, but, -- >> like a higher fence? >> maybe a higher fence, sir. or maybe some other -- >> because this guy got further in the white house than some of my republican colleagues have ever gotten. >> yes, sir. yes, sir, but you're right, sir, a higher fence would certainly help us, and we're looking for

ways and options. in fact we hope within the next few months to have some renderings, some drawings, some options for people to look at. >> the incident november 11th, there's hardly anything we can do about somebody from a great distance with a rifle is there? >> well, it's very challenging, yes, sir, you're right. but what we have done as a result of that is we've pushed out our perimeter a little further to constitutional avenue, to again to monitor that area, as well. >> i yield back the balance of my time. >> thank you, sir. >> thank you. >> chair thanks gentleman and recognizes the gentleman from texas for five minutes. >> thank you, chairman. thank you for being here. i have a great admiration for the secret service, back from the days when i was a judge in texas. i had agents bring cases, they were well prepared, and they did very well, and well received by juries. and i think that's still the case today. >> thank you, sir.

>> the secret service does a lot of things >> yes, sir. >> is your number one priority protecting the president and the president's family? >> yes, sir, absolutely. our number -- >> so that's number one. >> yes, sir. >> and everything else is below there and you're in charge of all that? >> absolutely, yes, sir. >> i think i believe that the united states because of who we are, it's really neat that the people can go to the white house where the president lives. >> yes, sir. >> you can't do that in any other countries. whether it's western countries, or third world countries. you can't go see who's in charge. you can't go to their house. you know. and we get to do that. american citizens get to do that. i think that's a good thing. let's go back to the fence jumpers. there have been 16 fence jumpers of recent years, is that correct? >> yes, sir. and then october 22nd i think we add one to that --

>> 17. >> yes, sir. >> all right. jumping the fence, going on to the white house grounds without permission, and i guess that would include republicans, as well, going without permission, would be a -- is a federal offense, correct? >> yes, sir. >> of those 16, leave out gonzalez, what happened to those 16 other fence jumpers? >> sir, i -- >> were they prosecuted? were they told to not do it again? were they released at the time? what happened to those 16 fence jumpers who presumably violated federal law by jumping the white house fence? >> sir, i know charges were filed. i'll have to get back to you with the exact how that played out in court, sir. i don't have those figures in front of me. >> i would appreciate it if you would take each one of those cases, date, and what -- whether they were prosecuted and then the rule of the prosecution. >> yes, sir. >> and send that to the chairman of the committee who will share it with the rest of us.

>> yes, sir. will do, sir. >> but that is the priority of the secret service is protecting the president. >> it is, sir. >> it seems to me that the secret service cannot make a mistake. this is one area where, you know, you're protecting the president. the president's family. there can't be mistakes. and if there are mistakes, but for some other intervening reason, bad things are going to happen. i believe that that makes, you know, your job, as you now -- i mean as you know the secret service knows, very serious, and very important. there could be no mistakes. ever. this is no -- you cannot do a redo if there is a mistake of security of the president and the president's family. at the white house there are not -- there's not just the secret service that is there. there's also the white house police, is that correct? >> sir, there's a uniformed division branch of the secret service that protects the white house.

>> so they're still secret service? >> they're secret service. >> they're not white house police. >> they're not -- years ago they were called white house police many years ago, yes, sir. but now it's uniform division of the secret service. >> okay. so it's all secret service. >> it is,ier, sir. >> it is, yes, sir. >> are there -- are there protocols when people jump the fence? 16 people jump the fence to make sure that the president and the president's family, if that's the ultimate goal of fence jumper to get to them -- >> yes, sir. >> that will not happen? >> yes, sir, and obviously on september 19th we failed in the execution of that security plan, but we do have very specific assignments, responsibilities of our all of our tactical units as well as our officers at the white house complex. and they've been successful in all cases. >> i have a couple more questions with a minute left. >> yes, sir. >> you're not trying to say this event occurred because of so-called budget problems, are

you? >> no, sir. >> it has nothing to do with the budget? because that's your number one priority is protecting the president. all the other things the secret service do and do well is dekd dare? >> yes, sir, that's credit. >> clolombia, how many agents were involved in the scandal? >> i was not assigned at that time. >> i know you weren't in charge. do you know how many agents were involved? >> there were 13 and i believe 10 are no longer with us. >> you all fired ten of them or let them retire? >> yes, sir. >> something like that. all right. i thank you for your help today. good luck to you. thank you, mr. chairman. >> thank you, sir. >> chair thanks the gentleman and recognizes the gentlewoman from washington. >> thank you, mr. chair. thank you, director clancy for being with us today. >> thank you. i wanted to ask you regarding the september 19th incident in

particular, can you explain further the radio communications challenges that were experienced? there were several officers unable to hear any quote comprehensible radio communications to notify them of the fence jumper, leading to, for example, a delay in deploying the canine unit. so is it concerning that some officers experienced unclear and muffled radio communications about the alarm break, and can you talk about what might have caused these communications challenges? whether it was people didn't know how to operate the equipment properly or whether there was actually problems with the communications infrastructure, the the underlying infrastructure? >> yes, thank you. we are very concerned with the radio communication. for us to execute our security plan, we've got to have good communication. and that night we did not have communication we should have had. we -- i did read the report by the deputy secretary of homeland, and he highlighted that as one of our failings, the

communication on that evening. we immediately went out and checked all of the radios at the white house complex as well as our joint operation center, and we did discover some areas at the joint operation center that the commander at the joint information center, when he put out word that there was a fence jumper, he was under the impression, and that his communication would override the hand held, but they did not. now we've corrected that. so when the joint operation center has to get a message out, that will override any hand held radio communication. there was also some reports of the muffling of radio communication. sometimes that's in the heat of battle. people have to slow down, use radio discipline and explain exactly what happened. we did a review of any dead

spots. were there any dead spots of radio communication? and we found there are no dead spots. but the command post was one area we had to correct. and that has been corrected. >> and given communication is critical to deploying resources in a situation like this. the the report recently issued by dhs suggests easing infrastructure may have contributed as well. so are there specific resources that may be preventing you from doing the best job you can? is there modernization to the infrastructure that is going to be important? and can can you give me any feedback on what you think will be more helpful in terms of the tools available to your officers? >> yes, ma'am. as i've been briefed, that is a main concern. sochl our equipment is aging. that is one of the areas we are looking at to try to enhance our radio communications. it's outdated, some of it. it's still operational.

we are always looking to improve the assets that we have. >> and do you know specifically what it is that you would prefer to have or what would be helpful? >> i don't have anything specific. it's more technical that i would have faxed today. but we'll provide a report for you. >> thank you, thank you. i appreciate it. i think i'll yield back my time. ch thank you, mr. chair. >> chair thanks the gentlewoman and is pleased to recognize the gentleman from utah. also to congratulate him on the new assignment in the the new congress on chairman of the house oversight committee. >> i thank the chairman and director. i thank you for being here. the president made an exceptional choice by putting you in this position in a difficult situation. i appreciate your service to this country and your role. you have an internal conduct.

my understanding is it deals with false and misleading information. do you expect every person in the secret service to live under this code? >> we do, sir. yes. >> there's no exceptions as to who or should not live under this code about providing false information and the penalties there? >> that's correct, sir. no exceptions. >> and my understanding is that if it is found that you're providing this information, that would be a five-day suspension to removal, correct? >> yes, sir. >> secret service put out a statement on september 20th, 2014, after the fence jumping incident. t where they said, quote, physically apprehended after entering the white house north portico doors. is that true or not true? >> that is not true, sir. >> it was further said that according to mr. donovan in an associated press article, that was posted on september 20th,

2014, at 1:24 a.m. eastern dlt time, donovan said -- ed donovan. what's his role in the secret service? >> here's our public affairs office. >> donovan said the man appeared unarmed to officers who spotted him climbing the fence, and a search of the suspect turned up no weapons. is that true or not true? >> sir, it's not true. can i elaborate on that, sir? >> let me keep going. >> yes, sir. >> how quickly after he was apprehended did you find the weapon on the suspect that had entered the white house? >> sir, i -- within minutes i would have to assume, sir. >> and somehow, mr. donovan evidently claimed that the suspect turned up no weapon. this is then posted on the associated press. was there ever a correction given to the -- posted on the secret service website or given to the media that this was inaccurate? >> sir, i don't know the answer to that.

>> so they just let that linger out there. let me go on. operation moonlight. mr. donovan is quoted as saying because there was no protective assets used during the checks, there was no impact on protective oerperations. do you believe that to be true or not true? >> sir, from the inspector general's report, everyone indicated it did not affect the protection of the president. >> so you have a prowler unit outside the white house. you have the president of the united states in the white house. and you don't believe that there's trouble by taking those protective assets and moving them close to an hour away from the president himself? >> sir, i've read the inspector general's report and we respect his report, and we agree with the report that there was poor judgment in sending the prowler unit that distance in this case. >> the inspector general came to the conclusion that the prowler unit would have been unable to respond if there was an incident

at the white house. >> that particular prowler unit, yes. that's correct, sir. any agent -- >> so did the president have more or less assets around him from the secret service by uses the prowler unit away? he had less, right? >> he did not have that unit, yes, sir. >> so there was less protection for the president as opposed to more protection from the president. >> >> well, it's a prowler unit. >> we don't know if there's going to be an incident on the president. how do you come to the conclusion that the prowler unit had no affect on the president's security. we were lucky there was no incident. what if there was an incident? >> sir, we have agented assigned to watch the field office. when they are called to the white house -- >> sorry. i have the yellow light on. i need to ask the core question here. we cited at least two, i believe three incidents, where the public was misled. there was false information.

it was not correct. was there any disciplinary action, and who is involved in that chain of command to review what the secret service is saying? because as a member of congress, as a united states citizen, the secret service misled us on purpose. was there any consequence to any personnel? did you follow the code, and did you suspend or remove people from their service? was there any penalty or consequence for providing false information? >> sir, i agree with you that i have the same outrage you have regarding the communication. >> we have to do a much better job of communicating in the internal. >> did anybody face disciplinary action? you have a major morale problem. and this is why. there doesn't seem to be a consequence to doing something in obvious violation of your own inal